Venture capital powerhouse Sequoia Capital is breaking into three entities, splitting its Chinese and US operations as tensions grow between the world’s two largest economies.
The firm, known for its early backing of Google, Instagram and some of China’s biggest Internet companies, plans to split up into independent partnerships and separate firms, operating under different brands, no later than the end of March next year, the company said.
“It has become increasingly complex to run a decentralized global investment business,” Sequoia said in a news release coauthored by its regional heads, Sequoia Capital partner Roelof Botha, Sequoia Capital China (紅杉資本中國) managing partner Neil Shen (沈南鵬) and Sequoia Capital India managing director Shailendra Singh.
“This has made using centralized back-office functions more of a hindrance than an advantage,” it said.
Sequoia over the years has managed tech investments across the Pacific, weaving in US endowment and pension money with opportunities in two of the world’s largest Internet markets. Now, as regulatory scrutiny in Beijing and Washington escalate, the company is finding it increasingly hard to navigate the policy landscape.
Sequoia was an umbrella brand for three already largely independent ventures: one focused on China, another on the US and Europe, and a third on India and Southeast Asia.
The Sequoia China business is to retain its existing name in Chinese and adopt the name HongShan in English. Sequoia India and Southeast Asia are to become Peak XV Partners. The US and Europe venture capital business is to continue to be known as Sequoia Capital.
At the same time, Sequoia Heritage and Sequoia Capital Global Equities are to operate under the Sequoia banner.
Sequoia is just one of many investment firms facing the new dynamics of venture investing globally. Coatue Management LLC, Softbank Vision Fund, Lightspeed China Partners (光速中國) and DST Global are among the entities with stakes in some of the same Chinese companies as Sequoia.
Still, Sequoia China stands apart. It started investing in the country years before most and still gets in at a very early stage. The strategy has led to it owning large stakes in high-profile Chinese initial public offerings.
Sequoia Capital and its Beijing affiliate spent more than a decade scattering billions across China’s multitude of start-ups, backing the likes of ByteDance Ltd (字節跳動) and JD.com Inc (京東), while becoming a powerhouse brand among the venture firms trying to strike it rich there.
It has expanded beyond early stage investing into growth stage, infrastructure, healthcare and consumer, and buyout funds. Sequoia China manages about US$56 billion asset under management.
Neil Shen has run Sequoia’s China presence since 2005. While many rival firms have committees outside China that approve or nix investments there, Sequoia China has been one of the few with its partners making their own on-the-ground decisions.
Shen has adeptly managed relationships with start-up founders, Chinese officials and a global investor base.
Sequoia China invested in about 1,200 portfolio companies in the country and has more than 300 staff in the country. The fund raised about US$9 billion for investments last year from pensions, endowment funds and family offices from the US, Europe, the Middle East and Southeast Asia.
The prospects for investments in China are now mired in uncertainty. Regulatory actions on both sides of the Pacific are squeezing nation’s technology industry and create unpredictability for its financial backers.
China is still weathering a decline in venture capital investments, despite once being touted as a rival to Silicon Valley.
US President Joe Biden plans to sign an executive order that would limit investment in key parts of China’s economy by US businesses, people familiar with the matter have said.
The US has also been briefing its G7 partners on the investment curbs.
In a speech on May 20, US National Security Adviser Jake Sullivan said that it “was no secret” that the US has been working on a targeted set of outbound investment controls.
The policies are complementary to ones that review transactions involving investment in the US, to determine if they are a national security concern.
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